Singapore’s bank regulator Tuesday shut down a second bank for “serious failures in anti-money laundering controls and improper conduct” linked to Malaysia’s 1MDB fund.
The Monetary Authority of Singapore (MAS) said Falcon Bank “demonstrated a persistent and severe lack of understanding of MAS’ AML requirements and expectations.”
MAS tied the AML failures to senior management at Falcon Bank’s head office in Switzerland and at the Singapore branch.
Authorities in Singapore arrested the local manager of Falcon Private Bank, Jens Sturzenegger, on October 5, MAS said.
Zurich-based Falcon Bank is owned by a subsidiary of Abu Dhabi’s sovereign fund, International Petroleum Investment Company.
Singapore fined Falcon $3.12 million for 14 breaches of the money laundering prevention law, including not filing suspicious transaction reports and failure to inform authorities of irregular activities in their customers’ accounts.
MAS also said Tuesday it fined Singapore’s DBS Bank about $720,000 and UBS about $940,000 for violating anti-money laundering laws.
MAS said its actions against the three banks Tuesday were based on an examination “into 1MDB-related fund flows that took place through these banks from March 2013 to May 2015.”
The Singapore regulator said it had “close cooperation with various overseas regulatory counterparts, in particular the Swiss Financial Market Supervisory Authority (FINMA).”
In May, Singapore shut down the local operations of Swiss-based BSI Bank for money-laundering lapses linked to the Malaysian sovereign wealth fund.
And in July, MAS named DBS and the Singapore branches of Standard Chartered Bank, UBS AG, and Falcon Private Bank Limited for suspected 1MDB-related offenses.
MAS said Tuesday it is finalizing its assessment of the Singapore branch of Standard Chartered Bank.
The U.S. Justice Department used evidence from Singapore to prepare a 144-page civil forfeiture complaint filed in July against about $1 billion in assets allegedly bought with money looted from 1MDB.
The DOJ said about $3.5 billion was allegedly misappropriated from the fund.
On Monday, Singapore authorities charged two ex-BSI bankers with helping divert money from 1MDB.
Private banker Yak Yew Chee, 57, was charged with seven criminal counts, including forgery and failing to report suspicious transactions.
Yvonne Seah Yew Foong, 45, who worked at BSI under Yak, was charged with helping him
Yak acted as a private banker to Malaysian businessman Low Taek Jho and to the 1MDB fund and related entities.
In July, Singapore seized property and bank accounts worth about $177 million linked to money allegedly diverted from 1MDB.
About $88 million was in accounts controlled by Low Taek Jho, MAS said.
Falcon Bank was originally owned by American International Group (AIG) and known as AIG Private Bank. In 2009, AIG Private Bank was acquired by Aabar Investments PJS and renamed as Falcon Bank.
Falcon had $900 million in assets in Singapore.
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Here’s the October 11, 2016 statement from the Monetary Authority of Singapore:
The Monetary Authority of Singapore (MAS) announced today that it is withdrawing the merchant bank status of Falcon Private Bank Ltd, Singapore Branch (Falcon Bank) for serious failures in anti-money laundering (AML) controls and improper conduct by senior management at the Head Office in Switzerland as well as the Singapore Branch.
MAS is also imposing financial penalties on DBS Bank Ltd (DBS) and UBS AG, Singapore Branch (UBS) for breaches of MAS’ AML requirements.
The actions on the three banks follow supervisory examinations by MAS into 1MDB-related fund flows that took place through these banks from March 2013 to May 2015. MAS’ investigations benefitted from close cooperation with various overseas regulatory counterparts, in particular the Swiss Financial Market Supervisory Authority (FINMA).
Falcon Bank
Falcon Bank has been operating as a merchant bank in Singapore since August 20081, offering boutique private banking services. It is headquartered in Switzerland. MAS conducted inspections on Falcon Bank in 2013 and 2015. The 2013 inspection found weaknesses in the bank’s controls for client acceptance and transaction surveillance that led to breaches of MAS’ AML requirements. Falcon Bank paid a composition fine of S$300,000 for these breaches, and MAS instructed the merchant bank to strengthen its AML controls. The 2015 inspection uncovered an even larger number of regulatory breaches as well as serious failings on the part of Head Office senior management and the Singapore Branch Manager.
MAS has decided to withdraw Falcon Bank’s status as a merchant bank in Singapore, taking into account the following factors:
- The merchant bank’s Head Office failed to guard against conflicts of interest when managing the account of a customer who was associated with the bank’s former Board Chairman Mohamed Ahmed Badawy Al-Husseiny. The former Chairman misled and influenced the Singapore Branch into processing the customer’s unusually large transactions despite multiple red flags.
- The improper conduct of the Singapore Branch Manager and certain senior managers at the Head Office had impaired the effectiveness of the Singapore Branch’s compliance function in discharging its responsibilities. Their interference was wrongful and egregious in nature, and contributed to substantial breaches of AML regulations. MAS has been informed that the Singapore Branch Manager, Mr Jens Sturzenegger, has been arrested by the Commercial Affairs Department on 5 October 2016.
- Falcon Bank has demonstrated a persistent and severe lack of understanding of MAS’ AML requirements and expectations. Taking into account the totality of Falcon Bank’s conduct, MAS’ assessment is that the merchant bank will be unable to comply with these requirements and expectations going forward.
MAS has imposed on Falcon Bank financial penalties amounting to S$4.3 million for 14 breaches of MAS Notice 1014 – Prevention of Money Laundering and Countering the Financing of Terrorism. The breaches include failures to adequately assess irregularities in activities pertaining to customer accounts, and file suspicious transaction reports.
Clients and customers of Falcon Bank are assured that the merchant bank, which is a branch of Falcon Private Bank Ltd in Switzerland, has the full support of its Head Office which is financially sound. MAS is working closely with FINMA, the home regulator of Falcon Private Bank Ltd, to oversee an orderly closure of the merchant bank branch in Singapore.
DBS and UBS
MAS has completed its inspections of DBS and UBS in relation to their 1MDB-related fund flows. The inspections revealed several breaches of AML requirements and control lapses. There were deficiencies in the on-boarding of new accounts, weaknesses in corroborating the source of funds, inadequate scrutiny of customers’ transactions and activities, and failure to file timely suspicious transaction reports.
The control lapses observed in DBS and UBS relate to specific bank officers who failed to carry out their duties effectively. MAS’ inspections did not find pervasive control weaknesses within these banks. MAS has admonished the two banks and instructed their management to investigate the lapses, promptly address the control deficiencies, and take appropriate disciplinary measures against the staff involved.
MAS has imposed financial penalties amounting to S$1 million on DBS for 10 breaches and S$1.3 million on UBS for 13 breaches of MAS Notice 626 – Prevention of Money Laundering and Countering the Financing of Terrorism. MAS has also directed DBS and UBS to appoint an independent party to confirm that rectification measures have been effectively implemented and to report its findings to MAS.
Other Financial Institutions
MAS is finalising its assessment of Standard Chartered Bank, Singapore Branch, and will make an announcement in due course. MAS has referred the 1MDB-related transactions processed by Raffles Money Change to the Commercial Affairs Department for their follow-up investigation.
Conclusion
Mr Ravi Menon, Managing Director, MAS, said, “Keeping Singapore a clean and trusted financial centre is a shared responsibility. The board and senior management of each financial institution play a pivotal role. They must put in place robust mechanisms to detect suspicious activities, promote strong risk awareness among their staff, and empower their compliance and risk management people. Most of all, they must set the tone from the top – that profits do not come before right conduct. MAS will work closely with the industry to ensure that standards are kept high and will take strong deterrent actions against institutions that fall short.”
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Richard L. Cassin is the publisher and editor of the FCPA Blog.
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